Systemic constraints and drivers for production of forest-derived transport biofuels in Sweden

The project has been financed and carried out within the f3 and Swedish Energy Agency collaborative research program Renewable transportation fuels and systems (Förnybara drivmedel och system).

Background

Diversification of forest industry activities into transport fuels is important for Swedish climate and energy policy goal achievement, and biofuel proponents also claim that it is important for Swedish forest industry competitiveness. There is significant ongoing research effort on biofuels for road transport and extensive experimentation on several technical platforms has been conducted. These different platforms each inter-relate in different ways with the forest sector and transportation fuel processing/value-adding industries. As of 2016, it remains unclear how many of these will emerge from niche applications or experimentation into the market mainstream.

Decisions regarding which particular forest-derived transport biofuels to pursue, and how best to pursue them, are complex and are influenced by many factors. On the technology side, such can include competition between technology development pathways; requirements for new distribution infrastructure; commitments to existing “locked in” fuel infrastructure; overall efficiencies of fuel production systems; relative engine efficiencies; rates of engine technology advances; and the progress in the development, or demonstration, of key technologies for fuel production. Consideration of socio-economics on the other hand, brings issues such as energy security; environmental quality; rural development potentials; consumer and political beliefs and preferences; media focus; vested industry interests; and logistics and spatial distribution. Misalignment among these many criteria has the potential to pose very real constraints upon the pursuit of any fuel pathway.

A constraining factor of particular relevance in the Nordic context is found within tensions that exist within the forest industries sector itself and is linked to ‘vested interests’. The forest industry is a critical sector for both biomass supply, and for technology system hosting. This study observes conflicting opinions regarding large-scale forest-derived transport fuel production. Depending how initiatives are framed, they can be seen as a new source of competition for limited biomass feed­stock supplies; a threat to the operation, or longevity, of important infrastructural items within a pulp mill; or as a complication for supply chains (e.g. with potential to increase transportation costs). Other issues that have been highlighted in recent years include differing views regarding the importance of cooperation between the forest industries and the petrochemical sector; which types of transportation fuels should or could be produced from the sector (e.g. syn-biogas, ethanol, meth­anol, DME, FT-diesel, etc.); and disparate opinions whether the main focus should be placed on biofuels or upon the inherent functions that exist in wood mechanical characteristics or chemicals.

This analysis demonstrates that Sweden hosts a very significant suite of advanced forest-derived transportation fuel initiatives despite the potential constraints or ‘complicating factors’ listed above. The technical function of a number of fuel platforms have been demonstrated at various scales, and biofuels are delivered to commercial transportation markets. However, the initial production cost for renewable transportation fuels is higher than that for fuels from the deeply entrenched fossil sector. This cost differential essentially precludes spontaneous development of the industry and significant support has been required. A variety of policy support mechanisms have helped the development of biofuel technologies and the creation of protected ‘spaces’ for experimentation. Policy support has also helped them to create spaces in the market.

This study has worked from the position that due to the inherently lower production costs for fossil based fuel systems (that are directly related to policy support and technical learning over many decades), it remains difficult to see the industry for renewable transportation fuels achieving independence from policy support in the short or medium term. This analysis is thus framed with the view that the need for ongoing support of ‘protected spaces’ for renewable fuels is a logical reality. An important portion of this work thus examines issues that affect delivery of efficient and effective support that can help to sustain such spaces.

Aims and objectives of study

This study is built from the premise that a number of the issues constraining the expansion of Swedish forest-derived transport biofuels have not been studied adequately. A need for a structured consideration of the degree of alignment of the technology systems with incumbent industries was identified. Thus, the analysis maps overlap and synergies (or competitive issues) between varying technology platforms, and seeks clearer insights into the preferences (or beliefs) of key ‘supply chain’ and ‘user chain’ actors regarding the future of a potential industry delivering modern transportation biofuels derived from forest-based feedstocks.

The assumption that the emergence of an advanced forest-derived biofuel system (an area of innovation) requires that the proponents of these new socio-technical systems for biofuels production must better account for incumbent actors, their strategies, existing infrastructure and markets is important for this analysis. The work also assumes that the technology systems themselves must evolve to fit with established socio-technical systems as they transition from isolated and protected niche applications into the mainstream. Or, alternatively that they force changes, or fill an opportunistic place, in the established regime by other mechanisms. To reflect this, the work was framed using insights and frameworks from technology transitions literature and institutional studies.

The overall purpose of this work is to provide input to the shaping of policy and research activities in Sweden that can promote the emergence of forest derived biofuels in coming years. It aims to contribute to a more updated and detailed understanding of the positions and views among existing, and potential, producers of transportation biofuels from forest-based feedstock in Sweden via work delivering against three objectives.

Objective 1. Provide understanding of the positions and views among existing and potential transportation biofuel producers in the important areas of:

  • synergy, or rivalry, or direct competition for important resources or political support;
  • key strategies pursued by leading actors in the forest-derived transport fuel initiatives and the incumbent petrochemical sector;
  • general ‘viability perceptions’ regarding leading fuel-engine pathways.

Objective 2.To describe and delineate notable differences between strategies and perceptions of need in the field and the scientific work undertaken and knowledge yielded by the research community (principally those of the broader f3 community).

Objective 3.To provide recommendations to policy makers, government, industry and other actors for decisions about the production of forest-derived transport fuels, particularly regarding:

  • areas where policy is helping or hindering progress towards fossil fuel independence;
  • the structural function of important drivers and barriers to progress – particularly related to intra-industry, inter-industry or institutional barriers issues.

Conduct of study

This project gathered information directly from actors involved in a range of forest derived forest-biofuel project initiatives. These views and experiences, along with a broad range of supporting materials, have been documented in detailed case studies and then subjected to cross case analysis. The analysis is structured with insights from two inter-related fields of theoretical work. The first has a strong focus on the examination of strategies to pursue collective action, and strengthen insti­tutionalisation and/or legitimation, so as to help overcome the difficulties of emergent technology systems. The second approach (the multi-level perspective, MLP) analyses both actors and the technology system itself within the broader socio-technical environment. It builds on the central idea that the establishment of new socio-technical systems comes about via transitions through, and interactions between, three different levels. Of special interest for this work was the pursuit, or emergence, of activities that help create ‘protected spaces’ within the market. The case studies are summarised below.

Table: Summary of Case Study Projects.

Cases Technology, Feedstock & Output Plant Capacity
(MW capacity and approx. production)
Chemrec and Domsjö Fabriker, (Örnsköldsvik Chemrec) Entrained flow biomass gasification, black liquor, Output: DME or methanol

100 MW ≈ 1000 GWh/yr

LTU Green Fuels, Piteå (Luleå University of Technology) Entrained flow biomass gasification, black liquor & pyrolysis oil, Output: DME and methanol 3 MW
Bioraff (biorefinery), Norrtorp (SAKAB et al, Kumla) Gasification, forest residues & waste, Output: methanol and/or methane

250 MW ≈ 1800 GWh/yr

VärmlandsMetanol, Hagfors (VärmlandsMetanol AB) CFB gasifier, wood chips, Output: methanol and heat

110 MW ≈ 600 GWh/yr

GoBiGas, Göteborg (Göteborg Energi, municipally owned energy company) Indirect gasification, solid biomass (pellets at first), Output: methane and heat

20 MW (≈ 100 GWh/yr)
100 MW (≈ 800-1000 GWh/yr)

Bio2G, E.on Sverige AB (E.ON Sweden) Gasification, wood chips, forest residues, Output: methane

325MWth feedstock
200MW biogas ≈ 1600 GWh/yr

Renfuel Catalytic conversion of lidning into lignin oil

>3000tonnes/yr
>20 GWh/yr

Preem Diverse:
HVO from bio-diesel
Bio-oils to diesel
Solid biomass to diesel

160 000 m3/year ≈ 1600 GWh/yr

Sunpine, Piteå (Södra, other owners: Preem, Sveaskog, Kiram, and Lawter) Raw tall diesel reparated from raw tall oil

100 000 m3/year ≈ 1000 GWh/yr

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A principal finding from the study

We have chosen to highlight one particular area as a central finding immediately relevant to the shaping of policy and research activities in Sweden that can promote the emergence of forest de­rived biofuels in coming years.

While all proposed projects shared a common set of challenging political and institutional condi­tions, of the seven larger (>500GWh/yr) fuel projects studied, only two (the Sunpine and Preem) initiatives (which also happen to be directly linked) have moved forward into commercial produc­tion. This analysis indicates that the nature of their project approach and how it allows development within the existing institutional conditions is central to their success.  Difficult conditions are sum­marised in the study as:

  • low ‘predictability’ among policy instruments that affect biofuels – the suite of policy in­struments have been surrounded by dynamic uncertainty;
  • short policy time horizons – in order to underpin investment decisions, a time horizon that is several times longer than the current best situation is required;
  • significantly reduced project proponent and investor levels of trust and confidence – related to the manner in which policymakers have managed the preceding two items, and the relat­ed series of project cancellations (or ‘mothballing’), trust in the Swedish and EU political processes required to underpin biofuels investments is now very much lower than in the past and perceptions of political risk are higher.

The projects (and their technology platforms) that are either cancelled or on hold are Chemrec and Domsjö Fabriker; Bioraff Norrtorp; Värmlands Metanol; GoBiGas Phase 2; and Bio2G (case study descriptions are provided in the report). This work indicates that these projects – each in their dif­ferent ways – aimed to achieve a substantial substitution of incumbent technologies in the estab­lished socio-technical system for transport fuels. Such degrees of ambition, and the strategies pur­sued, were not feasible under the prevailing political and institutional conditions.

In contrast, significant progress by Preem and Sunpine has apparently been achieved via pursuit of more stepwise processes. These have required reconfiguration of only parts of the incumbent tech­nological fuel-transport system. Here, a modular innovation or innovations within the biofuel sup­ply chain is seen to replace a part of the fossil system – or even fit in parallel with it – without sub­tantially changing the rest of the system. These more successful endeavours have been able to develop within the existing and difficult institutional conditions as they have been formulated to more or less match the fossil (regime) infrastructure – and then it appears – to gradually change it.

As a result of this work, it is first concluded that pursuit of stepwise reconfiguration strategies, in part or whole, appear more likely to succeed in Sweden than more radical transition strategies un­less there are significant improvements in the stability of policy support. While progress forward is being made by the successful platform, this may not be all positive. The longer the time that elaps­es before improved policy conditions emerge, the more ‘entrenched’ the new (emerging) system resulting from the Preem/Sunpine stepwise approach may be – this in itself may increasingly pose a barrier to the emergence of other platforms.On the other hand, if the institutional and political bar­riers detailed within this analysis ease, then the viability of all pathways can be expected to im­prove.

Despite a degree of concern that the Swedish renewable fuel system may be entering a form of ‘lock-in’ to a certain form of renewable fuel production, following the logic outlined above it is secondly proposed that pursuit of such modular and less ’bold’ strategies never-the-less also show promise to offer potential for more radical change should the substantial institutional and political constraints be reduced, and drivers and support mechanism be strengthened, or made more stable, or both. Indications are that they have clear potential to expand their feedstock base to a variety of bio-oils and then even solid biomass.

Thus, thirdly, we conclude that policy efforts, research activities, and future attempts to upscale or mainstream innovative biofuel production systems in Sweden can learn from such ‘more modular’ strategies and seek to exploit them wherever possible. However, decision-makers should not lose sight of the complex interplay of the broad palette of (potential) fuel production technology sys­tems that have been developed on the one hand, with the likely need for multiple solutions to meet social and political goals for the transportation sector on the other hand. At this point in time, it remains uncertain which of the potential pathways studied here will function at large scale. How­ever in the short-term at least, it appears advantageous that Sweden retain its capabilities to pursue a range of transportation biofuel solutions.

Other findings

More detailed commentary that directly relates to the three objectives of the study is briefly provid­ed here.

Firstly regarding synergies and/or competition for important markets and resources, a central conclusion of this work is that the initiatives, or portions of initiatives, that have been successful thus far have built substantially upon synergies and complementarities. The Preem-SunPine system provides numerous examples in this regard. These include inter alia: synergistic incorporation of Preem’s HVO system within its refinery structures; the Sunpine/Preem value chain has combined two separate projects to complement each other (e.g. HVO/tall oil diesel refining); SunPine rede­fines market conditions for the tall oil by-product streams thus complementing core business areas among the ownership consortium; and HVO fuels seamlessly mesh with the existing diesel fuel infrastructure that Preem utilises within its mainstream business. While synergetic or complemen­tary aspects were found in all cases, this particular case stands out due to the breadth and depth of ‘fit’ with other portions of the technical and institutional systems. Thus an important lesson for future efforts should be that the pursuit of cross industry and multi-faceted synergies will improve the strength of an initiative – and may be crucial to success.

A subsidiary conclusion is that Sweden has a suite of proponents for different forest-derived fuel platforms: (e.g. methanol, tall oil HVO, DME, and Bio-SNG) rather than a common ‘forest-derived fuel’ field or ‘sector’. Evidence suggests that this ‘constellation’ of actors do not effectively work in a synergistic fashion to further their common interests. Rather there is evidence that they com­pete in different ways for important resources such as media attention, social and political attention and support, research funding, policy sphere support, market space and so forth. A common plat­form to address common barriers to progress was not observed.

Competition for physical resources was also raised as an important issue within this study but pri­marily as an intra-sectorial issue for the forest industries. In short, engagement with forest-derived transport biofuels is perceived to have potential to increase industry costs. As such, it was conclud­ed that the forest sector is indeed still partially divided regarding the engagement with forest-derived transport fuels activities, and that this apparent ‘divide’ likely undermines the efforts of biofuel proponents to secure support from various social and political constellations.

Secondly regarding key strategies pursued in forest-derived fuel initiatives, this study concludes that the key strategies being pursued in the initiatives can be described using variations of two con­cepts from the transitions literature. The first being substitution and the second being stepwise re­configuration. The principle differences in strategies is that some require fundamental changes to large portions of the existing system – and also require changes in systems upstream, or down­stream, or both. Other initiatives however, require more modest changes, and may barely affect other items upstream and downstream. Clear evidence was found that reconfiguration strategies have been more successful thus far.

The most successful case involved Preem and SunPine in a linked value chain, with HVO produc­tion from mainly crude tall oil. As noted, this is seen as an example of ‘systemic innovation through stepwise reconfiguration’ in which the project proponent has adopted modular innovations – with each new step enabling additional innovations. The whole chain is part of the same market, it utilizes a distribution infrastructure that already is aligned with the core business of Preem, and only specific modules of the fuel production system that have been modified. This study concludes that this is a major contributory factor to why this initiative has been realized commercially.

In contrast, other projects such as the commercial size gasifiers GoBiGas Phase 2, and Bio2G can be used as an example of other strategies assessed within the study. These were planned to be of a size that would demand a very large increase in size of the relatively small market for vehicle gas. With no small portion of the market to fit within, this required a strategy where significant portions of the diesel and petrol market needed to be substituted. This in turn required very considerable efforts – from the project proponent side – to grow the market for the fuel via fleet change ex ante. On the technology side, such projects are also strongly substitutional – new gasification plants are in essence substitutes for traditional petroleum fuel infrastructure.

Thirdly, regarding the role of fuel-engine systems, cases highlighted how substitution or reconfig­uration strategies mentioned above create different engine platform and fleet requirements. Cases show how reconfiguration strategies, particularly those with drop-in fuels have many advantages, but the case for substation of specific fleets can also be made in specific situations. The situation is more challenging for all substitution pathways however.

Regarding the second work area – namely where the research community can better serve forest-derived transport fuel activities, this study finds considerable evidence that supports the guiding hypotheses made at the very outset of the project. These were that:

  • there remains insufficient knowledge regarding the degree of alignment of (proposed) fuel production technology systems with incumbent industries;
  • better understanding is required of the overlap of synergies (or competitive issues) between varying technology platforms;
  • clearer insights are required into the preferences (or beliefs) of key ‘supply chain’ and ‘user chain’ actors regarding the future of a sector,
  • there is insufficient delineation of ‘trade-off areas’ that the advanced transport fuels com­munity must recognize and resolve in coming years, and finally
  • the form and function of biofuel policy instruments in Sweden, and their relationship with EU rules and processes remains unresolved, the need for further assessment (and guidance) remains in this area.

One notable area for immediate work is assessment of the views of the broader industrial portion of the forest industries – as distinct from the actors in the forest industries that are engaged in transport fuel initiatives – accounting for this actor grouping will be vital for progress forward. In a broader perspective, the items above provide an outline for an important research agenda towards realisation of Swedish biofuels initiatives.

Regarding the third work area – namely areas for action to improve conditions for the produc­tion of forest-derived transport fuels, it was chosen to focus on two key audiences; namely, the policy sphere and the forest sector actors hosting initiatives relevant to this study. Comments seek to direct attention to where and why target audiences should direct efforts if they wish to improve conditions for the production of forest-derived transport fuels in Sweden.

Regarding the policy-sphere, a number of general conclusions regarding policy frameworks en­folding the development of domestic forest-derived biofuel production are listed here.

  • There is a clear mood of dissatisfaction among the industrial actors engaged in fuel initia­tives. In general, this study indicates that the levels of trust that such actors have in the Swedish and EU political processes is now low.
  • Factors representing the themes of eroded confidence, trust, and faith in policy support, have already and will continue to affect investment hurdle rates. Further, it is judged that investment hurdles are now significantly higher than they were in past years, both because of escalated perceptions of political risk exposure and because of the current low oil price levels.
  • If Sweden truly desires large fuel production initiatives in place, more stable long-term in­vestment conditions will have to be provided via policy instruments. This points clearly in the direction of moving from tax exemptions and towards quota obligations, or instruments directed towards certain investments in production capacity, such as the price premium model. A general time horizon for the investments addressed in this work is predictability over ten to twelve years.
  • If one of the key outcomes sought is to develop domestic biofuel processing industries that utilise domestic forest feedstock, then general policy instruments should be combined with more specific policy instruments on the market side.
  • If the vision is to keep the current distributions infrastructure and vehicle fleet relatively intact while still striving towards a transport sector that is independent of fossil fuels, more directed support towards developing the industry for the production of feedstock that is possible to use within Sweden’s existing refinery infrastructure is required. This and other studies have revealed that single pilot or demonstration plants cannot automatically gener­ate commercial size production units. If forthcoming initiatives such as the Renfuel project, to utilise lignin, are to be developed to serve the refineries with large amounts of bio-oil feedstock, a clear strategy supported by directed policy instruments will be required.

Regarding Forest-derived fuel proponents a number of general conclusions regarding areas where effort is required are indicated by this work.

  • The forest sector is partially divided regarding the value of engagement with forest-derived transport fuels activities. Some parts of the industry believe it is a valuable addition to the forest industries portfolio, some believe it is a risk. Such a potential ‘divide’ in the industry could undermine the efforts of transportation biofuel proponents to secure support from various social and political constellations.
  • If forest-derived transportation fuels industry is truly a valuable addition to the forest sector portfolio, as many believe, then the case for this needs to be made in a more convincing manner to a broader suite of social and political actors. The more unified the forest sector appears to external stakeholders, then the higher the legitimacy of messages from fuel initi­ative proponents would presumably also be. Increased efforts to pursue such alliances and unity by the forest sector thus appear to be a requirement.
  • An immediate knowledge gap appears to be of priority is the pursuit of a clearer picture of the ‘ambivalence’ or ‘opposition’ to transportation fuels initiatives from within the forest sector.
  • As issues such as continuing policy instability and short-termism are those that have been found to pose the most significant barriers to initiatives moving forward, then again the more unified the “forest-derived fuel sector” appears to external stakeholders, then the higher the legitimacy of messages from fuel initiative proponents would also be. Increased efforts to pursue alliances and unity among forest-derived fuel initiatives thus appear wor­thy of deeper consideration.

Concluding comments

This study has uncovered a rich tapestry of phenomena and views within the forest-derived fuels field. While evidence of significant advances in knowledge and experience for advanced fuel production systems has been found, the fact of the matter is that a number of initiatives where very large resources have been invested have not moved forward. There is a clear sense of disappointment and frustration present among many actors in the field. Despite such expe­riences, most informants to this study were reluctant to rule out the possibility that projects will be realised at some stage in the mid-term.

As a further positive note, this work has also documented significant progress forward by some (i.e. Preem and Sunpine). The success initiatives in the Swedish system have been able to develop within the existing difficult conditions as they have been shaped to more or less match the fossil (regime) infrastructure – to then gradually change it. We perceive such strategies to have the high­est likelihood of success for future developments.

Project period: 2014-2016

Participants: Philip Peck (project leader) & Yuliya Voytenko, IIIEE The International Institute for Industrial Environmental Economics, Lund University; Stefan Grönkvist and Tomas Lönnqvist, KTH Royal Institute of Technology; Julia Hansson, IVL Swedish Environmental Research Institute.

The project results are presented in two volumes. Part A is the report, including the main findings. For brevity, content is limited to a brief summary for each of the nine performed case studies. Full detailed versions of the cases are provided in the second volume of this report (Part B).